I am a software entrepreneur who is currently an investor and board member in three startup companies. I have a B.S. in mechanical engineering. I was born in 1948. This chapter of my life is about trying to help people make their dreams come true. I started writing about economics because I hate the way that our dysfunctional economy is crushing the dreams of so many people. Young people are delaying getting married and having children because of unstable jobs and incomes. It doesn't have to be this way, and I want to contribute to solving the problem. I believe that prosperity is possible.

Kansas Desperately Needs Fundamental Tax Reform

Because GDP growth is a function of private business investment, what are needed are policy changes that will attract more capital investment to Kansas. Given both supply-side economic theory and the examples provided by Texas and South Dakota, it is clear that Kansas needs to eliminate both its personal and its corporate income taxes. If you tax something, you get less of it, and income taxes reduce the returns generated by capital investments in business activities.

Against this backdrop, the FY2013 Kansas state budget proposed by Governor Sam Brownback represents an astonishing example of “clueless conservatism”. “Appendix A” of this document presents some first rate economic analysis, even going so far as to quote Dr. Arthur Laffer. It then offers a tax reform plan completely out of step with the analysis put forth—a tax plan that is literally designed to fail.

The Brownback plan proposes an immediate cut in the top marginal personal income tax rate to 4.9% from 6.45%, but no reduction in Kansas’ very high (7.00%) state corporate income tax rate. This is insane if the goal is GDP growth, because economic growth is most sensitive to the tax rate on corporate income.

The Brownback plan goes on to talk about additional tax cuts in future years, if revenues grow at 2% per year or more. The stated goal is to eliminate Kansas’ personal and corporate taxes over a ten-year period.

As Reagan (in 1981 – 1983) and Bush 43 (in 2001 – 2003) found out, a phased-in tax cut prolongs economic weakness, because people defer income until the lower rates take effect. A conditional phased-in tax cut is even worse. Businessmen looking at the Brownback plan would just invest their capital in Texas and South Dakota, and make a note to themselves to check back in ten years and see if the mooted Kansas tax cuts actually occurred. With the state losing jobs, citizens, and capital investment to other states, Kansas can’t afford to wait ten years.

Interestingly enough, the Brownback budget document contains the key to successful tax reform. Appendix A states, “Data show that sales tax rates have the least negative impact on economic growth relative to other tax types.” This is the truth. And, since it is also true that economic growth is what matters, it is obvious that what is needed is to replace Kansas’ personal and corporate income taxes with a sales tax—and to do it now. In other words, Kansas needs to enact the FairTax at the state level.

A grassroots tax reform movement has sprung up to press for this very thing. A bill to replace Kansas’ income taxes with sales taxes has been introduced into the state legislature. The proposed law is entitled, “The Kansas Economic Freedom Act of 2014”.

State-level economic freedom is a good thing, as the people of South Dakota, Texas, and seven other states can attest. In the long run, higher economic growth makes everyone better off, including the state government. A state-level FairTax would make life more prosperous for the people of Kansas, and perhaps even more colorful.

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